[Editorial] Pension Reform Should Move Quickly, but Generational Differentiation and Automatic Adjustment Require Caution (September 4, 2024)

(The core value the Pension Future Forum pursues is "enhancing intergenerational equity and building a sustainable pension system."

In the National Pension reform announced by the government in September 2024, the Pension Future Forum has consistently rated "introducing an automatic adjustment mechanism and differentiating contribution burdens by generation" as the core content.

In the March 20, 2025 amendment to the National Pension Act, the two most crucial elements were excluded. This was because the then-opposition party, which held a majority in the National Assembly, mounted strong opposition.

We are posting, in the Pension Future Forum's resource archive category, a newspaper editorial written from the same perspective as that of the then-opposition party's position.

This is so that a historical judgment can be made as to whose argument was valid.)

The government unveiled a pension reform plan on the 4th that raises the National Pension contribution rate from 9% to 13% while keeping the income replacement rate at around 42%.

It is commendable that the government, which had until now taken a lukewarm approach and passed the ball to the National Assembly, has put forward a single unified plan.

However, the differentiated contribution rates by generation and the automatic adjustment mechanism included in the government's plan should be approached with caution, given the reality of a segmented labor market and the short history of public pensions.

(Excerpt omitted)

The 'generational differentiation plan' — under which people in their fifties would see a sharp increase to a 13% contribution rate starting in 2028, while people in their twenties would see a slow increase until 2040 — is expected to generate no small amount of controversy.

This is because, despite its intent to ease the burden on the younger generation — who have many years of contributions still ahead of them and thus face a heavier burden when the contribution rate rises — it does not conform to the social-insurance principle of levying contributions according to ability to pay.

Questions are also being raised as to whether it is desirable to differentiate simply by age while overlooking the problem of inequality within a generation arising from differences in job quality. One in three insured persons in their fifties has not even completed the minimum contribution period (10 years) required to receive a pension.

(Excerpt omitted)

Together with this, the government says it will consider introducing, after 2036, a mechanism that adjusts pension amounts in line with life expectancy and the size of the insured population.

Once the automatic adjustment mechanism is triggered, pension amounts will be cut in a way that reflects less of the rise in prices. This is because the number of people paying in will shrink while the number of people receiving benefits will grow.

The government emphasizes that a considerable number of major countries have adopted this for the sake of pension-finance stability, but introducing it hastily in Korea — where old-age poverty is severe and the pension system is not yet mature — could backfire.

(Excerpt omitted)

The opposition party is already expressing concern over the automatic adjustment mechanism, among other elements. Criticism is also emerging that the government's structural reform plan — which had served as the justification for delaying pension reform all this while — may in fact stoke generational conflict and cut pension amounts.

https://www.hani.co.kr/arti/opinion/editorial/1157026.html#ace04ou